One of the global oil and gas industry’s favourite selling points for liquefied natural gas (LNG) is that it can help countries replace coal and support the transition to renewable energy. As the world’s second-largest coal-consuming country, India is often cited by pro-LNG lobby groups and project developers as a case in point. Woodside Energy Group, for example, recently declared that its newly approved LNG export facility in the United States would help reduce India’s coal demand.
However, claims about the potential for imported LNG to replace coal in India ignore economic realities. Imported LNG has historically been unable to compete with cheaper alternatives such as coal and renewables, despite government targets to expand gas usage. As a result, India’s existing gas infrastructure, including LNG import terminals, pipelines and power plants, remains heavily underutilised.
Evidence clearly shows that cheaper, cleaner technologies threaten the role of both coal and LNG in India’s long-term energy future
With little economic rationale, imported LNG is unlikely to serve as a “bridge fuel” in India’s energy transition, and therefore cannot be touted as a climate solution. Instead, evidence clearly shows that cheaper, cleaner technologies threaten the role of both coal and LNG in India’s long-term energy future.
Coal is the predominant fuel in India’s energy mix, providing more than half of the country’s energy needs. Although the government has set a target for gas to rise to a 15 percent share by 2030, its share has fallen from 11 percent in FY2011 to just over 7 percent today.
Claims that LNG — which is natural gas frozen to a liquid state for shipping — can reduce coal consumption in India imply that rising demand for gas coincides with a falling demand for coal. However, a recent report from the Institute for Energy Economics and Financial Analysis (IEEFA) found the opposite was occurring in India’s largest coal-consuming sectors.
In the power sector, for example, which accounts for 70 percent of the country’s coal demand, gas has been almost entirely squeezed out of the generation mix due to uncompetitive prices. The generation share of natural gas has fallen from nearly 13 percent in FY2010 to less than 2 percent in FY2025 while the share of coal has remained relatively steady.
Renewable energy, meanwhile, has quadrupled to 12 percent of the power mix since FY2016, mitigating fossil fuel demand growth in the power sector. According to official power plans, no new gas-fired power capacity will be completed by at least 2032. During that time, the government aims to reach 596 gigawatts (GW) of renewable energy capacity, up from 220 GW as of March 2025.
Why has gas struggled to replace coal in these sectors? One key reason is price
The decline of gas in India’s power mix has resulted in stranded assets — a point that pro-LNG lobby groups such as the Asia Natural Gas and Energy Association often choose to ignore. In India, 31 gas-fired power plants, with a combined capacity of 8 GW, did not generate a single unit of electricity in FY2025. IEEFA has estimated the value of these stranded assets to be Rs 650 billion (USD 8.2 billion). In April 2025, 5.3 GW of these non-operating gas units were retired altogether.
Beyond power, iron and steelmaking in India consume the second-largest share of coal. Here, too, LNG has done little to replace coal. Over the past decade, gas demand in the sector has risen by just 0.63 billion cubic metres (Bcm), of which just 0.08 Bcm has come from imported LNG, and the rest from gas produced domestically.
Although India is the largest producer of direct reduced iron (DRI) in the world — a process that typically uses gas — 80 percent of the country’s DRI fleet uses coal-based rotary kilns due to the relatively cheaper fuel.
Why has gas struggled to replace coal in these sectors? One key reason is price. Average LNG prices in FY2024 were roughly nine times the cost of domestically produced coal, and more than twice that of coal imported from Indonesia, India’s largest coal supplier. Moreover, LNG prices are prone to extreme volatility from geopolitical disruptions. Recent tensions in the Middle East and the potential closure of the Strait of Hormuz could cause India’s LNG prices to spike suddenly.
Miscellaneous industries — ceramic, glass, metal and pharmaceutical sectors and other small industries — are emerging as major consumers of both coal and gas. An increase in coal and gas consumption between FY2016 and FY2024 by these industries has been driven by imported coal and domestic gas, respectively.
Total gas demand among miscellaneous industries increased by 7.69 Bcm between FY2016 and FY2024. Of that increase, however, LNG demand growth was just 0.22 Bcm, while the remainder was for domestically produced gas.
So, while there may be room for coal-to-gas switching among small to medium industries, especially as the country expands its national gas grid, the suitability of LNG will depend on pricing, infrastructure and the competitiveness of alternative fuels
Notably, the average price of imported coal in FY2024 at USD 6 per million British thermal units (MMBtu) was slightly less than the domestic gas price of USD 6.5/MMBtu. LNG prices, meanwhile, average over USD 11/MMBtu. So, while there may be room for coal-to-gas switching among small to medium industries, especially as the country expands its national gas grid, the suitability of LNG will depend on pricing, infrastructure and the competitiveness of alternative fuels.
Rather than replacing coal, LNG in India has grown primarily in sectors that consume very little coal. The fertiliser sector, for example, has accounted for almost all of India’s LNG demand growth since FY2016. This growth can be attributed to large fiscal subsidies that protect consumers from high and volatile energy input costs. In response to the global gas price spike in 2022, the government spent USD 30.5 billion on fertiliser subsidies in FY2023. With the subsequent easing of gas prices, the fertiliser subsidy has been reduced to USD 19.5 billion for FY2026.
Since FY2016, LNG demand has hardly grown at all in energy-intensive sectors, including refineries, petrochemicals and power generation
However, the growth of LNG demand in sectors that do not receive large government subsidies remains to be seen. Since FY2016, LNG demand has hardly grown at all in energy-intensive sectors, including refineries, petrochemicals and power generation.
In several sectors, including city gas distribution, overall gas demand has grown significantly over the past decade. However, most of this demand growth has been met by cheaper, domestically produced gas rather than imported LNG. LNG is typically more expensive due to liquefaction, shipping and regasification costs.
Given that India’s domestic gas production is declining, many analytical groups simply expect imported LNG to fill in the gap. However, end users in India have repeatedly demonstrated a tendency to reduce gas demand altogether, and switch to more affordable alternatives when prices rise, leading to an underutilisation of existing infrastructure. For example, consumption of alternative industrial fuels such as furnace oil, low sulphur-heavy stock (LSHS), petroleum coke and liquefied petroleum gas spiked in FY2023 when coal and LNG prices skyrocketed in the global market.
Due partly to unaffordable prices, the country’s LNG infrastructure — including import terminals, pipelines, and power plants — assets have historically suffered from underutilisation. Of the country’s seven LNG import terminals operating in FY2025, six operated at below 50 percent. IEEFA estimates that the capacity-weighted average utilisation of India’s major gas pipelines is 41 percent, while the country’s fleet of gas-fired power plants operated below 10 percent from November 2024 to March 2025.
Economics are driving the energy transition in India and other emerging markets
Moreover, rapid increases in cleaner, more affordable alternatives to gas pose a major challenge to India’s LNG demand growth. In the power sector, for example, gas-based power has been unable to compete with renewable energy. The story is similar for the transport sector, where the growth of electric vehicle sales over the last eight- years has surpassed compressed natural gas (CNG) vehicle sales by 123 percent.
In sum, imported LNG has been unable to replace coal in India’s energy mix. Instead, the evidence points to a conclusion that the LNG industry refuses to acknowledge: economics are driving the energy transition in India and other emerging markets. LNG simply cannot compete.
